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Management Accounting within World Class Manufacturing: A Case Study

Article  in  Management Accounting Research · September 1999

DOI: 10.1006/mare.1999.0106

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Management Accounting within World
Class Manufacturing: A Case Study

Mostafa Jazayeri

and

Trevor Hopper

Manchester School of Accounting and Finance

University of Manchester

United Kingdom

Corresponding Address
Prof. T. M. Hopper
Manchester School of Accounting and Finance
University of Manchester
Manchester M13 9PL

Key words: World Class Manufacturing; Cost Management; Management Accounting Change;
Accounting and Operations Management

1
Management Accounting within World Class
Manufacturing: A Case Study

ABSTRACT

This is a case study of a UK chemical company implementing World Class Manufacturing (WCM). In
the late 1980’s the company encountered serious problems due to the rapid contraction of major
customers. It embarked on a programme of improving manufacturing introducing, inter alia, new
quality programmes and computerised production controls including MRPII. Whilst these programmes
were successful they failed to produce the turnaround sought. Faced with impending extinction, the
managers sought external advice from consultants during a WCM workshop organised by government
development agencies. Following this the company embarked on a benchmarking and strategic
assessment exercise which diagnosed the company as unduly manufacturing oriented, poor on new
product development and marketing, and insufficiently responsive to consumer needs. They adopted
WCM principles embracing six broad objectives: customer responsiveness, employee involvement,
quality, reduced lead-times, continuous improvement, and shop floor training for flexibility and problem
solving skills. The implementation of WCM was successful: there was objective recorded evidence of
improved performance against targets set in the WCM programme.

Management accounting superficially appeared unaffected by WCM. The budgetary control system
run by the accounting department remained intact. Product costing systems were not changed to
incorporate Activity-Based drivers, as predicted in the literature. However, there was a marked decline
in the influence of the accounting department, partly due to the cost module within MRPII. The
accountant became dependent on production for cost data. Whilst his responsibilities continued to
include the preparation of financial accounts and periodic budgets, cost management in terms of cost
reduction, target setting, diagnosis and problem-solving came to lie with production. The suggestion
of the case is that financial improvement may lie more with programmes of employee development
and involvement, making the company more quality conscious, flexible and adaptive rather than in
any redesign of costing systems. The implications of the research upon management accounting
change debates are discussed in the concluding section.

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INTRODUCTION

In many firms, World Class Manufacturing (WCM) has become a rallying call to spur improvements in
products, internal operations, customer service, and profits (Sheridan, 1990). The notion of world class
companies has spilled over into state policies. It forms part of the UK governments’ Competitiveness
programme which has become associated with training programmes in WCM methods for
manufacturing firms organised by regional training and development agencies (TECs) in collaboration
with management consultants.

WCM is based on the belief that competitive manufacturing requires an emphasis on customer service,
high quality, timeliness, and employee involvement (Hall et al., 1991): it draws heavily on Japanese
management practices, especially continuous improvement, benchmarking, JIT and selective
automation. It is argued that WCM is a set of fundamental managerial beliefs that transcend its
constituent techniques. Cost accounting has not been central to WCM ideas, though activity-based
costing (ABC) is sometimes incorporated within it. However, WCM with its emphasis on non-financial
measures, continuous improvement, computerised information systems, and changed management
structures and roles is likely to impact upon the role of management accounting.

The aim of this research was to investigate these matters through an intensive case study within a
subsidiary of a British chemical manufacturer, British Vita, following their participation in a WCM
training course run by their local TEC. The research is in the spirit of Foster and Youngs’ (1997) call for
management accounting research based on close empirical observation of topics perceived as important
by managers as the basis for subsequent analysis and theorisation. The paper proceeds with a brief
literature review of WCM and its alleged effect on accounting. It then describes the chronology of
organisational changes at British Vita and assesses whether the introduction of WCM precepts
conformed to expectations derived from the WCM literature. The paper concludes by reflecting on how
these results relate to broader debates on accounting change.

THE EMERGENCE OF WORLD-CLASS MANUFACTURING

Schonberger coined the concept of World Class Manufacturing in 1986 in a book of the same name.
Schonberger had a consulting and academic record in the areas of operations research, manufacturing
requirements planning (MRP), and Japanese manufacturing techniques (Schonberger, 1982). He

3
concluded that Japanese manufacturing techniques were variable and, based on evidence from US
companies, the best Japanese techniques could be exported to North American companies.
Schonberger set up a consulting company in 1986 now called World Class International (WCI), to
publicise his ideas. WCI has been active in the UK and Europe since the late 80’s with clients such as
Coats Viyella; Clarks Shoes; Glaxo; Midland Bank and many others.

WCI state that a world class business ‘is organised to serve the customer.’ but to achieve this a
business must return to the basics. WCM is a synthesis of management techniques in a contemporary
manufacturing environment covering three broad areas: people, process, and quality. Schonberger
claims that becoming world class means continual and rapid improvement in the eyes of customers
(1996). The tactics and techniques to accomplish this, WCI argue, fit together as a whole. WCI’s
intervention begins with a benchmarking assessment of whether the company is world class in
designated key areas followed by a management plan to reach goals claimed to be consistent with best
practice. Eight areas are deemed to be crucial: structured management skilled in managing cultural
change; a total quality ethic; employee involvement; an awareness of customers - internal and
external; supply chain management; business process engineering; integrated and automated
manufacturing, including Just-in-time (JIT); and product innovation. It is claimed that the necessary
actions may involve little or no outlay in capital expenditure. Schonberger’s term, World Class
Manufacturing, was quickly taken up by academic and consultant audiences alike, becoming the
trademark of a movement to implement simplified manufacturing methods, management approaches
committed to high-quality, low-cost, on-time production and new organisational structures1.

The term ‘world class’ has become central to UK government debates on national competitiveness.
Here world class has tended to be associated with the benchmarking of UK companies against the
performance and attributes of their major international competitors. In the late 80’s the Department of
Trade and Industry (DTI) commissioned a report from PA Consulting entitled ‘Manufacturing in the
90’s (DTI, 1989). Their conclusion was that manufacturing companies had to become ‘world class’ in
five areas2 to meet increasing European and global competition. Improving national competitiveness
became a key policy theme of the 1990s (Eltis and Higham, 1995). The Conservative politician,
Michael Heseltine, upon heading the DTI Ministry, started a Competitiveness initiative with zeal and
the following Labour Government has enthusiastically endorsed it. The UK Government has
published Three White Papers on competitiveness (DTI, 1994, 1995 and 1996) and is committed to
producing a fourth in 1999. Similarly, the European Commission followed up its 1993 White Paper,

4
Growth, Competitiveness and Employment, with the establishment of a high level Competitiveness
Advisory Group to promote government initiatives to improve manufacturing performance in various
areas. A series of other initiatives also occurred 3.

The flurry of activity and discourse around the notion of world class inherent in the Competitiveness
policies, and the need for training in companies to implement it, created possibilities for action at a
local level, subsequently reinforced by the release of government funds for tendered initiatives. The
initial WCM programmes came from the TECs, which were independent of but closely related to the
work of the DTI. TECs were established as independent, not-for-profit, companies controlled by a
board of directors - two thirds of who are prominent local business people. They were established as
private sector partners to local government in providing training, though nearly all of their funding
comes from central government (Rotherham, 1997). North West Training and Enterprise Council
(NWTEC) is the regional co-ordinating body for six local TECs. In 1992 and 1993 NWTEC, then
newly created, developed a WCM programme for companies in its region. Local TECs were involved
in identifying companies for the WCM initiative and its delivery. A consulting company, Forum 21,
was instrumental in creating the initial proposal and their director, John McMahon, is seen as ‘single-
handedly’ developing the WCM ‘agenda’ in the North West and elsewhere in the UK (interview,
NWTEC). The actual programme was bid for and delivered by three consulting companies under the
auspices of the TECs. Fifty-five companies took part in this first phase.

WCM IN THE NWTEC PROGRAMMES

The definition of WCM in this paper is based upon its portrayal in the NWTEC training courses - a
focal point of the research. The management consultants who devised the WCM programme based it
on their perceptions of best practice and their reading of the relevant managerial literature. The
programme was structured around a series of modules outlined below.

 Flexible processes and facilities – includes flexible machine centres, minimal set-up times, and
little inventory leading to small warehouses and work-in-progress areas. This, and hopefully no
defects, seeks greater responsiveness to customer needs and to reap economies of scope.
 Advanced information technology –advocates a single database, maintained on a real-time basis,
for both operating control and financial reporting. This can be used to collect and generate
operational and financial data from the factory floor, converting it into useful, ideally real-time,
managerial information, such as units produced, material utilised, scrap, cost by operation, and cost

5
 by individual product.
 Planning and control – incorporates demand stabilisation with minimum rescheduling, zero
changes, hourly planning, short lead times, small batches, and close co-ordination with vendors.
 Product design and innovation – emphasises the need to recognise and address short product life
cycles by constant product innovation and improvement based on customer needs - including
service, quality and reliability. WCM stresses the need to shift production from highly
competitive, homogenous and well-established low value added products. Its design stage
methods emphasise simplification, especially having few complex or non-standard components
and 100% quality right first time.
 Financial controls – that identify product and customer profitability through ABC, intensive
investment, maximising value through minimising variable costs, and physical performance
measures tracing flexibility, reliability and quality.
 Organisation structures – based on product teams, few hierarchical levels, and organic structures
for quick and complex decisions. Top management’s involvement is deemed crucial for producing
a change from commanding to an emphasis on learning and facilitating. WCM advocates a product-
based organisation with fewer central services and the re-assignation of staff specialists to product
teams. A feature of the programme was its advocacy of ‘customer facing’. Initially, this was applied
to line-staff relationships. Staff functions were reconstituted as providers of services to the line, i.e.
their customers, and they were expected to employ the same relationships and monitoring devices to
the line as the company had for its customers.
 Benchmarking – endeavours to evaluate key corporate features against current “standards of
excellence” internationally (Steudel and Desruelle, 1992). The comparisons are inputted into
product development, quality planning, product and process improvements and corporate goal
setting to set agendas that challenge traditional practices, attitudes, and what constitutes attainable
goals. WCM firms actively seek to share information with other companies.
 Employee involvement – embraces multiskilling and delegated responsibilities to shop floor
workers. WCM programmes seek multi-skilled workers involved in set-ups, quality control,
improvements, maintenance, and short-run planning. Piece rates are discouraged because of their
undesirable effects on quality and flexibility. Information ceases to be a management prerogative
and is distributed more widely. Considerable emphasis is lain upon changing confrontational
attitudes amongst workers and managers to one of co-operation. This is facilitated, inter alia, by
diminished status distinctions between grades of employees, e.g. common pension schemes.
 Total quality management – stresses continuous quality improvement as everyone’s responsibility

6
 and across all areas, e.g. equipment, procedures, employee skills, throughput times, quality,
supplier and customer relations. Quality is paramount, along with reduced lead times and waste
elimination. The continuous improvement programmes and labour flexibility require training
programmes to teach workers multiple job skills, data collection duties and problem solving skills.
 Long-term strategic plans – long run (normally three to five year) plans and objectives explicitly
translated into policies and operational plans for implementation are seen as critical. These are
expected to be subject to constant review and sufficiently brief and tangible to be distributed to all
employees. It is argued that WCM companies, to be proactive and adaptive, plan over long time
periods with an emphasis on multiple strategic factors, whereas their conventional counterparts
stress short-run financial criteria at the cost of neglecting customers.
 Statistical process control - focuses on total control based on statistical process control (SPC) - a
data-intensive system which collects information on critical manufacturing factors and will shut
down processes that transcend acceptable ranges. The system encourages decision-making at the
operating level.

A feature of the WCM programme was its long-run nature, the assistance of consultants in the
implementation process and the insistence upon senior management involvement from inception. The
programme normally ran for 15 months. Senior managers were expected to be involved for a
considerable proportion of their time and were responsible for cascading their learning back in their
own firms.

WCM AND COST ACCOUNTING

“In the pre-WCM era we thought that production could be managed “by numbers”. The
numbers would show what to make, what to buy, whom to blame. If, for example, the latest cost
report shows a negative cost variance in welding, the onus is on the welding supervisor to cut
costs. But how? There are no data on the causes of the cost average ... WCM mandates
simplification and direct action: Do it, measure it, diagnose it, fix it, manage it on the factory
floor. Don’t wait to find out about it by reading a report later.” (Schonberger, 1986).

Schonberger has said little on what shape, if any, management accounting would take in a WCM
enterprise. Insofar as he addresses management accounting he is dismissive of its role as can be
inferred from the above quotation and his address to the 1991 CAM-I Conference (Schonberger,

7
1991). In many regards Schonberger’s position is not dissimilar to Johnson’s thesis in Relevance
Regained (1992). This rests on three main arguments (Ezzamel, 1994): the need for a problem-based
management rather financial engineering; the abandonment of management accounting systems because
they emphasise results rather than improving processes, and the reliance upon TQM to manage
processes. In contrast to the claims in Relevance Lost (Johnson and Kaplan, 1987), Johnson in
Relevance Regained argues that accounting relevance was not lost but rather it was never relevant to the
efficient running of businesses:

“Certainly I do not believe the answer is to reform how we do management accounting. In that
regard I refute the advice. You hear from people who advocate activity-based costing, or ABC,
as the panacea to what ails American business ... Improving how companies trace overhead
costs may be important for some things, but in the guise of cost drivers, ABC doesn’t
necessarily stimulate continuous improvement nor does it mark a pathway to competitive
excellence.” (Johnson, 1992, p.8).

Schonberger (1991) passed similar comments indicating that whilst ABC may be relevant to product line
decisions it was unsuitable for performance assessment, adding that the cost reporting role would
diminish as managers spend more time on physical customer-centred measures of continuous
improvement.

WCM and ABC

Thus the first issue is whether traditional cost accounting and ABC is antithetical to WCM. This is of
interest because other WCM proponents (including the instigators of the programmes in this research)
give accounting, especially the adoption of ABC, a prominent role. They argue that in a WCM
environment product profitability will become the main focus of accounting systems, characterised by
full-stream tracking of costs as incurred (McNair et al., 1988; Howell and Soucy, 1987a, 1988). Direct
labour will be a smaller proportion of product cost and will become fixed in nature. Thus there will be
few variable costs beyond material costs. They recommend that WCM firms charge costs directly to
products thereby eliminating the need to allocate and apportion. Costs that cannot be charged directly
should be assigned to products through ABC as described by Cooper and Kaplan (1988).

The reasons for the inconsistencies between Schonberger and Johnson, and other WCM advocates,
regarding ABC are difficult to answer with confidence. Discussions with the consultant who designed

8
and instigated the WCM training package for NWTEC revealed that ABC was included in the belief
that it complemented WCM by enabling firms to identify value added of products and hence shift to
higher value added products, focused customers and product rationalisation. However, he conceded
that to his knowledge no company involved in the WCM programmes had seriously and
systematically implemented ABC or were likely to do so. The suggestion is that ABC was slipped in
opportunistically by consultants possibly because it was currently fashionable and amongst their
wares and/or it was perceived as complementary to WCM aims.

WCM and Accounting Change

There is greater agreement amongst WCM advocates on other possible effects of WCM approaches
upon management accounting4. These include: a greater focus on actual costs and trends; continuous
cost reduction within operations - extending to supplier relations and cost savings at the product
design stage; non-financial performance measures; advanced technology to collect cost data; the
collection of environmental information; and investment justification based on various qualitative and
quantitative strategic factors not merely financial numbers. These all featured in the WCM course of
NWTEC.

Under WCM cost information is more likely to be shared throughout the organisation. The focus
switches to cost management rather than product costing and control through static budgets and
standards with implications for the role of management accountants. McNair et al., (1988) state that
WCM performance measurements should capture elements of manufacturing strategy, expose non-value
added costs for elimination, provide accurate and timely data on cost drivers, and serve as accurate
records for product costing decisions. They cite four critical factors that need to be measured at every
level of activity - people, quality, delivery, and cost. It is argued that in a WCM environment there will
be an emphasis on multiple performance measurements, many of which may be physical. Given that
cost management may be performed by non-accountants and the declining importance of conventional
management accounting tools, then the role of management accountants is likely to involve more
general management within multi-functional project teams. Nevertheless, many accounting
commentators on accounting change still see the provision of information as the preserve of the
management accounting function (Kaplan, 1983, 1984, 1986; Johnson and Kaplan, 1987; Cooper and
Kaplan, 1988; Shank and Govindarajan, 1992).

Howell and Soucy (1987b) claim that under WCM accounting focuses on actual spending on
materials, labour, other manufacturing and non-manufacturing expenses and their trends, with a view

9
to continuous improvement and cost reduction rather than focusing on potentially dysfunctional
standard costing variances. It is argued that WCM costing systems focus more on actual costs in a
manner closer to job costing than process costing, to reveal different layers of cost variability and
individual product costs. Managers will prefer on-line inquiry to paper documentation since it
provides a ‘real-time’ grasp of costs and resource sacrifices at their points of occurrence.

WCM product design produces a different pattern of costs: more costs for new products or process are
committed prior to production and shorter product life cycles require more rapid recovery of product
development costs (Howell and Soucy, 1987a, 1987b, 1987c; Berliner and Brimson, 1988; McNair
and Mosconi, 1988). By design completion, whilst only 5% of the budget for product or process
enhancement may be spent, often more than 80% is committed. In addition, design and material
decisions made during project planning limits subsequent control over production costs (Berliner and
Brimson, 1988). Traditional financial systems focus on tracking costs incurred in the shop with little
attention to cost management for process or product improvements at the design stage where the
major cost savings often lie (McNair and Mosconi, 1987; 1988). Not surprisingly, given WCM’s
Japanese orientation, its emphasis upon costs at the design stage resonate with Japanese cost
management techniques, especially continuous cost reduction, target costing, physical performance
measures and, above all, more processual forms of cost management. The WCM literature often
accuses accounting of failing to monitor a company’s progress towards WCM goals (high-quality
manufacturing, low cost products reaching customers quickly and customer satisfaction), providing
misleading product costs, and supplying narrow information with an internal orientation thereby
deflecting attention from strategic decision making (Clarke, 1995). This echoes themes of strategic
cost management (Shank and Govindarajan, 1992; Shank, 1989) which argue that management
accounting should extend to providing costing analyses related to competitive position of products
and the identification of firms’ relative advantages as well as measures of customer satisfaction.

Cost accounting change is afoot5 but research lacunae remain. There is a dearth of academic studies of
accounting changes: many of the reports are from advocates of new methods with consulting interests.
It is known that many companies adopting WCM and some of the new accounting methods do so
unsuccessfully or only in part: yet the processes of implementation remain relatively unstudied. The
effectiveness of the methods is poorly understood with undue reliance upon self-interested accounts.
Also, there is a tension in the accounting literature between those proposing the reform of accounting
through better measurement systems with the accountants’ power and centrality remaining intact, and

10
those who argue that this is merely old wine in new bottles. The latter argue for a substitution of
traditional accounting by more processual, physical systems subsumed within general management
and changed systems of employee governance. This debate is germane to WCM which is not
consistent on this and related issues and oft prescribes accounting changes in both directions assuming
that conflicting tensions either do not exist or are manageable.

RESEARCH METHODS

The empirical work followed six steps of case study design: preparation; collecting evidence;
identifying patterns; explaining patterns; developing theory; and report writing (Scapens, 1990, p.
274-275). The study collected empirical data from multiple sources, mixing qualitative and
quantitative methods, including interviews, detailed observations and documentary analysis (Yin,
1984; Denzin, 1978; Scapens, 1990). The aim was to generate a rich source of field data with internal
checks on its validity. The data was gathered over seven months in two phases: the pilot phase lasted 4
months during 1994-1995 and the main intensive study lasted 3 months during 1995-1996. An open-
ended interview format was used to gather the data during the pilot study. Semi-structured interviews
were conducted in the main study supplemented by a study of documentary materials and direct
observations. Interviews were conducted during on-site visits with 68 employees at all levels
including: Finance Director, Financial Controller, Managing Director, General Manager, Management
Accountant, Business Managers, Sales Managers, Marketing Managers, Production Managers, shift
supervisors, and shop floor workers. The interviews lasted between 1 and 4 hours: all were tape
recorded and subsequently transcribed.

The pilot study, which was conducted in various divisions of British Vita and Coates Viyella, covered
the following topics: background of organisation; business unit goals; cost accounting practices;
management accounting systems; investment justification; performance measurement; incentive
systems; marketing strategies; production processes; and significant organisational changes in the
recent years. The pilot threw up a wide range of possible topics for further investigation. However, it
was decided to concentrate on a division in British Vita that had adopted WCM - as it was closest to
the original research interest, namely whether UK companies were adopting Japanese cost
management methods. The basic research questions were thus: Why and how did the company
implement its WCM programme? What effect did it have upon behaviour and performance? How did
management accounting change upon the adoption of WCM? Did the changes correspond to the

11
predictions of the WCM literature?

Documentation, manuals, and operating statements relating to accounting and the WCM implementation
plan were collected. These were extensive and illuminating. A document summary form (Miles and
Huberman, 1984,p.55) was used to clarify and summarise the contents for later analysis. British Vita’s
head office supplied consolidation accounting report package and accounting manuals. These documents
were crucial in helping gain a comprehensive understanding of changes associated with WCM and their
effects upon management accounting. Lastly, an earlier draft of this paper was fed back to management
for checking and comment.

BRITISH VITA plc

British Vita plc is a medium-sized British company based in Manchester. It has 9500 employees. Sales
in 1995 were £875.6m. British Vita is capitalised on the London Stock Exchange at a value of around
£500m. It is an international leader in the manufacture and processing of a wide assortment of
polymers including cellular foams, synthetic fibre fillings, specialised and coated textiles, polymers
compounds and mouldings. Their products are marketed to the furniture, transportation, apparel,
packaging, and engineering industries. British Vita is the third largest foam manufacturer in the world
and the largest supplier in Europe. The company has a 4-5% market share in the USA and it claims to
be the market leader in the UK, Germany, Benelux, and number two in France and Poland. There are
associated firms in the USA and some African countries.

The Main Board of British Vita formulates corporate strategy, approves investment and
acquisition/disposal decisions, and determines treasury policy. A Management Board comprising of
the five executive directors and the senior chairman of major UK and European subsidiaries addresses
operational issues. The company’s main objective, stressed in publicity material and by management
alike, is to earn profits for shareholders. This is seen as being most likely to be achieved by
continuous expansion, initially into Europe but now to the USA and the Far East based on Vita’s
specialised technologies and expertise.

Company A, the site of the main study, is a wholly owned English subsidiary of British Vita bought in
1968. The plant is 12,100 sq. ft. and production value is approximately £355,000 per week. It has 130

12
employees. The principal activity is the manufacture of coated fabrics, adhesive, closed cell foam
products and chemical resistant elastomers. The company is home to four businesses, designated as
Business One through to Business Four. Each is a division headed by a Business Manager with
delegated responsibility for financial and non-financial performance targets.

Business One’s products are officially approved ones for British Coal, DHSS standard mattress
covers, lorry tarpaulins, bouncy castles, foam filled toys, industrial protection and active leisure wear.
There is considerable domestic and overseas competition, mainly from Korea and the business is
under severe price pressures. Business Two makes closed cell foams used in life jackets, equestrian
and motor cycle clothing for body protection and other closed cell foams for industry. 50% of
production is exported. The only major direct competitor is a Swiss company but there is growing
competition from Korea and Taiwan. Business Three is the biggest producer of rubber sheeting for
rubber rollers in Europe with 75-80% of the market, exporting to all EEC countries, the Middle East
and Africa. Quality is its major competitive advantage. In nearly every country, in addition to large
American, UK and German competitors, there are small local competitors that can give quick delivery
but not the technical expertise and resources that customers need, so customers tend use Business
Three and a local supplier. Business Four manufactures adhesives, sealant, and coating. Their
equipment and knowledge enables them to make several liquid products with varying market
characteristics, e.g. the furniture adhesive market is highly competitive and price sensitive but others
are less so. Business Four competes with big multinational adhesive companies but direct overseas
competition is less than domestic competition.

THE FIRST CRISIS AND TRANSFORMATION (1990-93): MANUFACTURING CHANGES

Shortly after joining British Vita, Company A closed several businesses and bought several more,
including closed cell polymer and adhesives manufacturers. From 1980 to 1990 there was a continual
increase in profits. The Managing Director (MD) explained:

We reached a peak in 1989/90. We saw very high returns on capital -150% return on
shareholders’ fund which is very high - and something about 110% on sales. So we were doing
superbly well at that point.

In 1990 demand from the two main customers (Coal Mining and the Ministry of Defence) declined
dramatically. The MD recounts:

13
 Unfortunately from 1990 the pit closures and the reduction of the coal mining business meant
that we lost 60% of Business One sales. A dramatic reduction in a very short period of time -
probably 18 months - at a much faster rate than we had anticipated ... We had a business ill-
equipped to develop new products at the rate that was required because we never needed to and
we don’t do things for the sake of doing them ... We had a business that could develop slowly
and inefficiently but not one that could move at the rate we need to move. It is hard to lose 60%
of your business and have slow development.

An economic recession and increasing overseas market penetration compounded problems. Both the
Manchester and the Bolton sites were making losses and the company decided to combine both
operations at Manchester. As the Production Manager recounted, this was not a success.

So we closed down the Bolton operation. Unfortunately a lot of the people who should have
moved didn’t move, so we lost a lot of skills. The whole thing was a king-sized cock-up ... we
lost a lot of market share, had a lot of debit notes, and Business One went into quite substantial
losses. At the same time Business Four suffered a loss of volume so his profits were reduced,
though he still stayed profitable. Business Two suffered market changes and had less
profitability. The only one who continued to do quite well was Business Three.

Managers of Company A in 1990 perceived their problems thus: high competitive pressure from
domestic and foreign competitors; poor delivery on time; products not approved by the quality standard
BS 5750; Business One making substantial losses; Business Two suffering from market changes; and
the loss of skilled personnel. They came to believe that with more than 3000 customers in 26 countries;
2456 raw materials; 1691 formulations; 1093 suppliers in 8 countries; 1606 finished producers; and 62
machines, the company’s operation required a more efficient data system to answer customer price and
delivery queries swiftly. The Financial Controller explained:

In terms of the system we have now, six or seven years ago we were having quite a few
problems. Customers would ring up saying they want 1000 metres of ABC fabric and when can
we have it. Sales administrators were just given a date with no rationale behind it. They just
had a gut feeling of when it could be done by ... Inevitably we were falling down on quite a lot
of those dates, so our MD decided that if we were to be competitive in England then we needed
to improve our performance.

Inadequate accounting and management information were identified by the Chief Executive as the major
culprits. Errors in delivery time had led to failures in meeting due dates and senior managers had
recently examined new accounting packages with sales and purchase order processing systems with a
view to rectifying these problems. Improvement of management information became a priority to
address the crisis.

14
British Vita’s Management Control Systems

British Vita’s management controls, including its cost systems, were and remain, highly decentralised.
Each subsidiary is treated as an autonomous, independent, integral business in its own right: each
subsidiary MD has full responsibility for strategy and operations. British Vita’s Financial Controller
explained:

Our organisation is autonomous companies and doesn’t rely on central directors. They just
operate within a financial framework but they are allowed their own initiative etc. In terms of
systems development on the financial side that is very much down to the to the local
management team. So we let them get on with it and obviously we monitor their results.

British Vita does not have a strategy outside the strategic business plans for its subsidiaries. However,
each subsidiary had to supply a standardised Business Performance Report to Headquarters monthly.

Business Performance Reports are the basis for overall performance evaluation of each subsidiary. It
consists of five parts: cumulative results, current month/period results, resources at period end, capital
expenditure, and a review of operations. The cumulative section compares the current year’s
performance against the annual plan and previous year’s noting working weeks; net sales; and net
profit before tax. The current month/period results embrace: working weeks; net sales; material usage;
direct labour; gross profit; factory, selling and distribution costs, and administration costs; net profit
before interest; interest paid and received; and net profit before tax. Each actual is compared to budget
and the previous year with an analysis of trends. The resource at period end reported numbers
employed, debtors, creditors, net cash (borrowings), and a detailed financial and physical analysis of
stocks. Again all were compared against plans, previous periods and years, and trends with an
appropriate commentary. The capital expenditure part consists of current period activity for
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15
 1 Literature describing WCM's technical and operational characteristics includes Gunn, 1982; Umble, 1990;
Maskell, 1994; Ranky 1990; and Voss and Blackman, 1996.

2 The five areas were the introduction of new products; better manufacturing processes; integrated logistics
with suppliers and customers; organisational forms that use people more effectively and; integrated information
systems.

3 These include the White Paper, “Competitiveness: Helping Business to Win” that marked the first time a
combination of Government Departments, spearheaded by the DTI, have taken a strategic view of their
individual and collective contribution to the UK’s competitiveness; the report of the House of Commons Trade
and Industry Committee “Competitiveness of UK Manufacturing” (1993); The European Commission’s White
Paper “Growth, Competitiveness and Employment - the Challenges and Ways Forward into the 21 st Century”;
UNICE’s report “Making Europe More Competitive - towards World-class Performance”; The Managing in the
‘90s programme, which encourages the adoption of best practice by SMEs in all sectors of industry;
Manufacturing into the Late-1990s, which contains valuable and important insights into the future facing
Britain’s manufacturing industry; and the Labour Party Strategy document “Winning for Britain”: and the CBI
ran a programme called the Competitiveness Forum in 1994-95 which sought to exchange details on best
practices amongst companies.

4 There is a parallel debate on the relevance of traditional cost accounting systems (see Bromwich and Bhimani,
1994). Kaplan (1983, 1984, 1985, 1986, 1988a, 1988b) sees management accounting as lagging behind
technological developments and changed manufacturing strategies alleging that by the late 1980s many "...
companies had recognised the limitation of traditional cost accounting systems for measuring, motivating, and
evaluating manufacturing performance." (Kaplan, 1990, p.70). His views were influenced by manufacturing
research, especially the CAM-I project (1985, 1988) and Miller and Vollman (1985), claiming that traditional cost
accounting systems are at odds with the new manufacturing environment (Lammert and Ehrsam, 1987, p. 32).
Literature on management accounting in the new manufacturing environment includes: Schonberger, 1982, 1986,
1996; Howell and Soucy, 1987a, 1987b, 1987c, 1987d, 1988a; Howell et al., 1987; Berliner and Brimson, 1988;
Cooper and Kaplan, 1988; McNair and Mosconi, 1987; McNair et al., 1988; Young and Selto, 1991; Kaplan, 1990;
Kaplan and Norton, 1993; Johnson, 1988, 1992; Steudel and Desruelle, 1992; Schonberger and Knod, 1994; and
Camp, 1989. A recurring theme is that traditional systems are overly concentrated upon cost measurement, labour
efficiencies, overhead spending and the identification of variable costs.

5 There are indications that MAS's are changing. Researchers claim that innovative cost accounting practices are
emerging in manufacturing departments using advanced technologies such as computer aided design (CAD),
computer-integrated manufacturing (CIM), flexible manufacturing systems (FMS), total quality control (TQC),
total productive maintenance (TPM), just-in-time (JIT), total factory automation (TFA), total employee
involvement (TEI), quality function deployment, performance management, and supply chain management (Bruns
and Kaplan, 1987; Howell and Soucy, 1987; McNair and Mosconi, 1988; Richardson, 1988; Hall et al., 1991).
These call for better internal knowledge and analysis of markets and competitors (Drucker, 1990; Johnson, 1992).
UK case study research indicates many British companies are on a similar trajectory of change to their North
American counterparts, laying greater stress on quality, delivery performance and customer satisfaction (Davies
and Sweeting, 1991, 1991; Murphy and Braund, 1990; Lyall et al., 1990; Drury et al., 1993; Bhimani, 1993, 1994;
Cobb, 1993; Coates and Longden, 1989; Cobb et al., 1992

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